ACCT 3366- Financial Reporting Frameworks Test Questions and Correct Answers

Visualize the Important Role of Accounting 1. Produce good decisions 2. Foster a prosperous society Financial information to various external users - Investors - Creditors - Other external users Financial Information is a Key component of that information set Investors and creditors -To predict the future risk and potential return of investments or loans -Before supplying capital to businesses Financial Information is conveyed through financial statements - Balance Sheet, - Income Statement (and the statement of comprehensive income), - Statement of cash flows, - Statement of shareholders' equity financial reporting Refers to the process of providing financial information to external users Capital Markets provide a mechanism to help our economy allocate resources efficiently Corporations acquire capital from: - Investors in exchange for ownership interest - Creditors by borrowing - Either through individual loans or publicly traded debt such as bonds Key variables in investment decision rate of return and uncertainty/risk Why do investors and creditors provide capital? They want to earn a fair return on the resources they provide Shareholders receive cash from: Sale of the ownership shares of stock Periodic dividends Rate of Return equation (dividends + share price appreciation) / initial investment